What just happened?
A series of head-spinning political events in 2016 has left many in the construction industry feeling discombobulated and grappling to understand how the commercial consequences will unfold
This was the year we seemed to lose much more than we gained, I’m afraid. It will forever be known as a time when our country wrestled its economy from the pinnacle of recovery and unceremoniously dumped itself into a mire of self-doubt and recrimination.
This was the year when the rule book was not just ripped up but first shredded and then buried in the same grave as pollsters, pundits and politicians.
In the UK 2016 will always be the year of Brexit - its effect on our industry is still to be determined. It is fair to say that the equally awful campaigns on the remain and leave sides prepared us for nightmare visions, none of which have yet to occur. Yes, in the immediate aftermath of the vote the housing market took a hit with shares at housebuilders such as with Taylor Wimpey, Bellway, Barratt, Crest Nicholson, Persimmon, Berkeley Homes and Bovis Homes all plummeting by around 20%, while commercial property funds also shedded 15% of their worth. However, housebuilding output has been on the rise in recent months, and according to industry data is the best performing sector within construction.
In general, in the construction sector, we are all still busy completing work commissioned some time ago. The Markit/CIPS data shows that we have just seen the third consecutive month where building work has risen since a downturn in the third quarter, though the rate of growth is well below the levels of 2014 and 2015.
So the protestations of instant calamity predicted by David Cameron and George Osborne have not yet occurred.
However, as anyone who has worked in the built environment for any length of time will know, we operate on the supertanker principle, not the speedboat principle. The spending decisions being cancelled or delayed after the Brexit vote will not really hit us for several years and this is the big fear articulated by seasoned industry observers, who are not seeing developers and funders reaching for their chequebooks any time soon.
Most worrying is that we end the year facing cost-push inflation brought about by a huge drop in the value of sterling that has seen prices for raw materials rise at their fastest level since April 2011. Bricks, blocks and slate, for instance, are all seeing large hikes squeezing margins. Clients will not build and customers will not buy if they feel insecure about the future and I think it is fair to observe that we close the year feeling a lot more uncertain than when it opened.
The response by the government to the EU referendum result failed to sooth nerves or calm matters. Prime minister Theresa May’s “Brexit means Brexit” catchphrase has not proved popular or illuminating for those of us trying to plan for the future.
The Autumn Statement saw chancellor Philip Hammond offer to spend on infrastructure and housing and the sums sounded impressive: a £23bn National Productivity Investment Fund for infrastructure and innovation over five years. But while the government has pledged to increase infrastructure spending to 1.2% of GDP, this is still below the level of many other countries.
On a positive note, it is good to see the prison building programme green-lit at last and perhaps a new, enlightened attitude towards incarceration may prove to be one of the few bright spots in an otherwise challenging year.
The election of Donald Trump as US president is another key event in 2016 that has caused the market to be shaken. Whether a supporter or an opponent, his election was another huge shock and it is fair to say that while Mr T’s background is in property development, nobody is expecting any favours from the US under his presidency. The administration is likely to be more isolationist than expansive and, if he really does want to build a wall between the US and Mexico, he will need a highly competent quantity surveyor or project manager to enable it to meet his target figure.
I started by saying that we seemed to lose more than we gained during this year and on a personal level, the loss of Zaha Hadid cost this industry one of its few truly internationally recognised talents – she will be sorely missed. Ms Hadid, above all others, demanded tolerance and acceptance of change. Let’s hope that during 2017 we can once again look forward with a sense of optimism as a country and gain some form of leadership from those who govern.
Above all perhaps, we who operate in a commercial rather than political environment should point out in the strongest terms via whatever means come to hand, that at the heart of any successful negotiation is compromise.